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I wonder if they said they were sorry, said Jay Speer, executive director of the Virginia Poverty Law Center.

Its a great situation when the people of Virginia get to finance campaigns of Virginia politicians, said Ward Scull, a Newport News businessman who has been campaigning to tighten regulation of high interest rate loans for years.

He started after an employee asked for a $300 loan, and he learned she was trying to get out from under six payday loans, totaling $1,700, on which she was paying triple digit interest rates.

Payday, car title and other consumer loan companies are major donors to Virginia politicians giving $4.2 million in the past decade, including $230,000 to Saslaw.

I suffer no illusions, said state Sen. Mamie Locke, D-Hampton, as she stepped up to make her case for a 36 percent cap on loans after Saslaw reported the companies promise and the committee shot down a series of four similar bills.

Lockes bill was one of several lobbyists say the largest number seen in recent memory meant to rein in car title, payday and open end credit lenders.

This is the ninth time Ive introduced this bill these loans trap people in a cycle of debt, state Sen. John Miller, D-Newport News, said a few minutes after Locke spoke.

Both senators, along with state Sen. Scott Surovell, D-Mount Vernon, were tackling a problem buried in the fine print of loan paperwork and state law.

The old-fashioned kind of consumer loan, the kind that sets fixed monthly payments over its term, is subject to a 36 percent cap on interest rates for amounts below $2,500. Theres no cap on amounts greater than that, but rates are generally lower for larger loans. These lenders do credit and employment checks.

The rates on loans people borrow against their car titles are capped, too, at a maximum of 262 percent. They cant run for more than one year and bar the lender from suing for any difference between the value of a repossessed car and the amount outstanding on the loan.

Those protections vanish if a car title steers a borrower to an old fashioned consumer loan for more than $2,500.

The limits on payday loans a $500 limit on payday loans and caps on fees go away if a lender steers a borrower to an open end credit agreement. Those agreements are like credit cards, requiring a relative small minimum monthly payment, but the amount owed can balloon as interest piles up, especially since the interest rate routinely exceeds 300 percent.

Loans like that are simply beyond what the lower-income borrowers those lenders target can afford, Scull argues.

Its not just a social justice issue, its a workforce issue, he said.

Lobbyists for the lenders say they provide a service people want and are willing to pay for but one lenders cant afford to make if the state cracks down on rates.

When we talk about an APR (annual percentage rate) of 278 percent, you have to remember that the average term of these loans is 46 days, said lobbyist Reggie Jones.

Payday lenders arent going to make loans for 10 cents a day for $100, which is what theyd receive with a 36 percent rate cap and a ban on charging any other fees, he said.

Saslaw said hes worried that if payday and car title lenders are driven out of the state, that would simply open the door to loan sharks.

You know what street credit is? he said. You borrow $100 on Monday and pay back $200 on Friday, or else bad things happen thats what 36 percent would do.

Jan. 22 — The Consumer
Financial Protection Bureau (CFPB) is running out of time before
the 2016 election could bring a possible change in direction — or
an entirely new structure should Republicans take the White
House.

Left unfinished in 2015 are a series of significant
rulemakings affecting debt collection, prepaid products, mandatory
arbitration clauses, and payday loans.

The CFPB needs to pick up the pace of its rulemaking
“if the agency intends to make a dent in its agenda before the end
of [Director Richard] Cordrays term or changes to the CFPBs
structure are imposed, whichever comes first,” Jonathan L. Pompan,
a partner at Venable LLC, told Bloomberg BNA in an e-mail.

In the meantime, Pompan predicted the “CFPB will
continue to make examination findings and bring enforcement actions
that are groundbreaking and test the boundaries of the agencys
authority, fair notice, and due process.”

Another item of local interest was a recent editorial in the Deseret News about payday loans. The article noted “too many Utahns don’t recognize how much trouble they can find themselves in if they don’t pay back their loans quickly.” While I was on the Logan Municipal Council, we discussed the problem of payday loans in our city. We found all we could do legally was cap the number we allowed to the number we had at the time of a new ordinance. The other day I saw a new payday loan business on Main Street, so I contacted the city. They said yes, it was indeed a new one, but it was still under cap limit, as one had closed elsewhere. I was glad to know that. The city staff is on the ball! My preference, of course, would be if there were none at all. A majority of states have passed legislation forbidding such businesses. But not our Utah Legislature! Even after all the ‘mess’ with our last attorney general and some other state officials. According a recent state report, over 45,000 loans were not repaid in full at the end of a 10-week period, and there were 7,927 lawsuits from payday lenders against delinquent clients in one year. The average payday loan carries an interest rate of 482 percent. Come on Utah legislators — bite the bullet and do something about this in the forthcoming session.

According to Debt.org, predatory lending, in part, is any lending practice that imposes unfair or abusive loan terms on a borrower.

That covers the gamut of lending types, such as balloon mortgages, but Ive heard it most often used in connection to payday loan companies.

This week, Features Editor Emily Letterman wrote a story about payday lending for the first Banking and Finance section of the year.

CU Community Credit Union is presenting its customers an alternative to the high-interest, short-term loans with the help of a $2 million US Treasury grant. Instead of paying an annual interest typically upwards of 400 percent, account holders with the credit union for at least 90 days can pay around 27 percent interest on short-term loans through its initiative.

In the article, Letterman sought comment from several payday loan companies as well as title-loan firms but couldnt get anyone to call her back. There could be any number of reasons why the companies she contacted didnt want to talk for the story, but I suspect many in that line of business have adopted a defensive posture when it comes to the media. I suspect theyve adopted that attitude because predatory lender is a moniker with which they dont want to be associated.

The truth is, Letterman, who never used the term in the article, wanted to hear their side of the story, especially now that a new bill in Jefferson City sponsored by Rep. Don Gosen, R-Ballwin, would impose some restrictions on payday lenders. One key restriction is limiting the number of loan renewals customers could receive to two from six.

Im sure these two moves combined pose a threat to payday loan businesses, but for Lettermans story the voices of payday loan operators werent available.

Those who see payday lenders as predatory probably wouldnt care.

For what its worth, I thought Id briefly share my experiences as a consumer. Working as a reporter is no financial windfall, and I am not ashamed to say Ive used payday loans for years.

When I graduated from Missouri State University in 2008, I had three credit cards that were maxed out, and I vowed that I wasnt going to take another credit card until I paid off what I owed.

Several times since then, and even a few before 2008, Ive turned to payday loan companies for quick money to cover bills. From hospital bills to car repair to Christmas, things have popped up, and Ive appreciated having a short-term loan option.

As Lettermans story points out, the cost of the loans finance charges may range from $10 to $30 for every $100 borrowed, and generally, $500 is the cap.

I know if I needed an extra $500, I could write a check dated out two weeks for $590. I also know if I needed to renew that loan a few times, I could do that, too. Thats expensive, of course, and I almost never renewed the loans Ive taken out.

At around 400 percent annual interest rate, payday loans are a great Band-Aid, but a very expensive crutch.

While Im sure there are people who have gotten stuck in a detrimental cycle of renewals, it should be noted that consumers in a free country arent obligated to take out loans they dont want. To me, a $90 finance charge on a quick $500 is reasonable, which is why Ive turned to that option before.

From my perspective, payday loan companies serve people in need of money with small loans. There is a niche in that market because banks, which face their own fair share of regulation, arent typically offering $500 loans.

Dont get me wrong, Im proud to live in a country where people look out for others in bad financial situations. With its $2 million federal grant, CU Community Credit Union will be able to provide a valuable service to customers, and I dont blame it one bit for pursuing that path. However, Im curious to see if that negatively affects payday loan businesses. Ironically, if they are hurt, one natural remedy could be to raise rates on customers. That means those who arent CU Community customers could be adversely impacted.

Im just one consumer here, but amid an environment where payday loan operators might have reason to be defensive, I thought it was worth noting Ive never been a victim. Real people run these businesses, and the suggestion theyre preying on the public not only insults them, but it insults their customers who werent abused.

Perhaps, Im not a typical customer. But I know the free market is addressing a need and simply adding industry restrictions or introducing a competitive advantage to preferred lenders does little to address the root problem.

The legal philosopher, Robert Cover, wrote Legal interpretation takes place in a field of pain and death. We hide the pain in legalese, euphemism and an obliviousness to what the law actually does. For instance, a man shows up at your bank with a gun. He takes all the money out of your account, then this same man takes his gun to your employer and demands money out of your paycheck. This isnt some fictional mob tough guy. This is the law in action, and the man with the gun is a sheriff. Our legal euphemism for sending out the muscle to collect? Garnishment.

This isnt to suggest that payday lenders are mobsters. But as legitimate, legal enterprises, payday lenders do access the courts at the rate they do to avail themselves of the state-sanctioned muscle to collect on their behalf.

Gibson asked for arguments grounded in facts and research. Fair enough. Take 10 bankruptcy cases that we are personally familiar with, all recently filed in either December 2015 or January of this year: Among those 10 cases, there were 19 high-interest, non-payday loans; 22 payday loans; five lawsuits tied to high-interest loans and five lawsuits filed by payday lenders. One client with a net income of $1,415 per month had payday loans totaling $5,928.

The payday lending business model is a modified game of musical chairs. Customer 1 takes out a loan from payday Lender A at 528 percent interest, which will double the amount of the loan in the 10-week interest restriction currently under Utah law. When this loan comes due, Customer 1 goes to payday Lender B and takes out a new loan at 528 percent interest to pay off payday Lender A. When the second loan comes due, Lender A, having been paid off earlier, gives the customer a loan to pay off Lender B.

The tragic game continues until the customer collapses financially under the weight of these untenable loan obligations, leading to legal action against these former clients initiated by the payday lenders.

Up until that time, providing the customer can keep the music playing, payday lenders rake in 528 percent interest on their money from the poorest members of our community.

This game of musical loans is played out countless times with clients. Payday lenders dont want default. They want loan turnover to keep the business profitable. They dont want the game of musical loans to end. This also explains many of the statistics in Ms. Gibsons op-ed, (ie most loans are repaid in full in 29 days and only 6.6 percent enter into an extended payment plan — precisely the results youd expect the musical loan model to produce).

Furthermore, most payday loan clients arent aware of the extended payment plan option. They simply get new loans to pay off old ones.

No one needs weep for payday lenders because of Utahs 10-week restriction on interest on payday loans, either. Payday lenders accomplish in 10 weeks what other lenders realize in 10 years at 10 percent interest. Plus, when it all falls apart, our legal system legally backstops them by giving payday lenders unlimited access to legal muscle to collect those last dollars of interest using our courts and our sheriffs.

At the very least, the Legislature ought to require some minimal underwriting before giving payday lenders access to this legal collection muscle.

Rep. Bradley Daw serves on the Social Services Appropriations subcommittee and represents District 60 in Orem. E. Kent Winward is a consumer bankruptcy attorney with more than 25 years experience.

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Payday loan regulation reduces young people’s debt problems
Finland’s 2013 law on payday loans, which set a maximum interest rate, has helped reduce the number of problem debtors especially among younger age groups. That’s according to a new study, which also found that among the over-55s payday loans now take up a bigger share of total debt.

Payday and auto title loans have become more common over the past decade. These loans typically involve small amounts (generally $500 or less) for short periods of time (such as the borrower’s next payday). An auto title loan is similar, but uses a car title as collateral rather than the post-dated check or access to a checking account required by payday loans. If borrowers are unable to pay back the loan amount in full at the end of the term, they can make an interest-only payment to delay repaying the loan. This process (referred to as a renewal, rollover, or refinance) increases total fees without decreasing the principal of the original loan.

While small-dollar loans can serve a needed role in a community by assisting a borrower experiencing financial difficulty, payday and auto title loans often involve very high interest rates and fees and can increase financial strain for families already burdened. According to Texas Appleseed (a highly respected advocacy group for equal access to justice), depending on the type of loan, the average cost to repay a $500 loan ranges from $600 to $1,274. If an individual refinances a loan, the average total cost can jump to over $3,800! In 2014, Texans borrowed more than $1.6 billion in new loans from payday and auto title lending establishments and paid over $1.4 billion in additional fees.

Texas is classified as a permissive state with little or no regulation of payday loan businesses. Even among permissive states, however, one study found that Texas had the highest costs, at over $23 for every $100 borrowed for a two-week period and close to $234 for every $100 borrowed after refinancing. According to the Texas Fair Lending Alliance, Texans can pay almost double the amount of fees compared to borrowers in other states. The average annual percentage rate (APR) in Texas in 2014 ranged from 242 percent to 617 oercent, depending on the type of loan. It is an understatement to say that these rates are significantly higher than other types of short-term lending, such as credit cards which typically have APRs of 12 percent to 30 percent.

To put this issue in perspective, a recent study by CreditCard.com found that the average credit card debt in the Dallas-Fort Worth area is close to $4,900. Assuming the borrower could pay 15 percent of their balance off each month, it would take approximately 14 months to pay off the debt and a total of $382 in interest. If this same amount had been taken out as a payday loan (or multiple payday loans of smaller amounts), a borrower would have paid around $1,150 in fees to pay off the loan on-time with no refinances. However, according to the Pew Charitable Trusts, it takes the average payday borrower five months to pay off a payday loan. With refinancing fees, this would mean a borrower could end up paying over $11,000 in fees to borrow the initial $5,000. In other words, a borrower could easily end up spending 3 to 30 times the amount in fees than they would have paid in interest on a credit card.

Payday and auto title lending have additional costs well beyond the fees associated with the loans. Oftentimes, the fees and short-term due dates cause families to become mired in a cycle of debt where they are paying large amounts on rollover fees but never come any closer to retiring the original loan. Defaults can seriously damage credit, not only making it more difficult to get low-cost loans in the future, but also impairing the ability to find a job or affordable housing since employers and landlords increasingly make decisions based on credit history. In fact, according to the Center for Responsible Lending, one in seven job seekers with “blemished credit” were passed over for a job following a credit check. Also, the community as a whole can suffer as lending drains away resources that would normally be spent in the local economy and causes an added strain on social services from families caught in a cycle of debt.

Recently, there has been a movement among Texas cities to regulate payday and auto title lenders and currently 26 cities in the state of Texas have passed local ordinances, including Austin, Dallas, Houston, and San Antonio. There has also been substantial reform effort in the legislature led by former Speaker of the House Tom Craddick, but to date it has not been successful. Many of the local ordinances require these businesses to register with the city, limit the amount of the loan and the number of refinances allowed, and include a provision that payments should be used to lower the amount of principal owed. Communities are also working to encourage the development of low-cost alternatives to payday and auto title loans. Credit unions, banks, non-profits and even employers have all become involved in the attempt to provide viable alternatives to payday loans through offering micro-consumer loans at reasonable rates.

In addition to city ordinances and alternative loan programs, community education is crucial. Many borrowers are attracted to payday loans because of the advertised ease of access, but do not truly understand the commitment they are making. Borrowers also choose a payday loan because alternatives such as borrowing from family or friends, selling assets, or cutting expenses are viewed as even more unpleasant. Nonetheless, borrowers are often driven to these alternatives in order to pay off the original payday loan. In addition to the debilitating harm to individual families, these lending structures cause a quantifiable drag on the entire economy. One of the best ways to protect families and the economy from abusive loan practices is to raise awareness as to the true costs of these loans as well as the alternatives that exist.

Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.